Being Street Smart
Watch For A Taper Time-out.
February 14, 2014.
Good luck to new Fed Chair Janet Yellen and her expectation that the Fed can
continue to taper back its QE stimulus at the current pace until it is
completely gone by summer.
The economic reports say it is not going to happen.
In her optimism regarding the economy, expressed in her testimony before
Congress this week, Yellen pointed to GDP growth hitting an average annual rate
of 3.5% in the last half of last year, compared to only 1.7% in the first
Regarding the negative consequences tapering seems to be having on emerging
markets she said in effect that the Fed is only worried about the U.S.
She shrugged off the recent dismal jobs reports, saying weather may have played
a factor, only agreeing that employment is still far from satisfactory
However, the problems are not showing up only in the jobs picture.
As I noted in previous columns, it has been the unexpected widening of the U.S.
trade gap, as exports decline and imports rise. It has been in the huge plunge
of the ISM Mfg Index, and in Durable Goods Orders, factory orders, home and auto
This week is was the negative surprise of retail sales being down 0.4% in
January, and previously reported sales for December revised down from a
gain of 0.2% to a
decline of 0.1%. It was also not
encouraging that within the report, online sales, which should be boosted by bad
weather that keeps shoppers away from the malls, also fell in January, down
The Federal Reserve reported Friday that U.S. industrial production fell 0.3% in
January, versus the consensus forecast for a rise of 0.2%. The production report
would have been even worse except for a 4.1% surge in utilities output due to
increased heating demand.
estimate from the U.S. Bureau of Economic Analysis (BEA) was that the economy
(GDP) grew at an annual pace of 3.2% in the 4th quarter, a number
also noted by Fed Chair Yellen. However, the BEA subsequently revises the number
monthly for several months as new information regarding the quarter comes
While Janet Yellen remains sanguine about the future, major Wall Street firms
have slashed their economic estimates quite dramatically again this week,
particularly after the disappointing retail sales report for January. They are
continuing to cut their expectations not only for this quarter, but also for the
fourth quarter of last year.
Barclay's bank says the downward revision this week of previous reported retail
sales in December subtracted another 0.4% from the firm's already declining
estimate for the fourth quarter, which now suggests a probable downward revision
by the BEA to 2.2% "a full percentage point below the first official estimate of
Michelle Girard, chief economist at RBS, says, "Our running tally of probable
revisions for fourth-quarter GDP point to a downward revision to
Jan Hatzius at Goldman Sachs cut his 4th quarter estimate of GDP
growth to 2.4%, and his estimate for the current quarter to 1.9% (it was at 3.0%
just three weeks ago).
This week Credit Suisse economists reduced their estimates for the current
quarter in 2014 from their previous estimate of 2.6% to just 1.6%.
It may not be good news for the economy. However, the stock market loves
After declining for five straight weeks in January and into early February on
concerns about the negative effect the Fed's tapering was having on economic
reports, the stock market has rallied for eight of the last ten days, now
celebrating each additional negative report.
What happened to its concerns?
The deteriorating economic outlook has now reached the stage where each
additional negative report becomes difficult for the Fed to shrug off, or blame
on weather, and adds pressure for it to at least pause the tapering back of its
In her testimony before Congress this week, Fed Chair Yellen did say the Fed is
"staying the course unless the data turns decidedly negative."
It is doing so, and the stock market probably has it right that Fed stimulus
will remain on the table for longer than expected. Whether that would be enough
to reverse the U.S. economic slowdown, and global economic problems,
particularly if the Fed waits until their next FOMC meeting in mid-March to make
the decision, may be a question markets have to face later.
president of StreetSmartReport.com and
editor of the free market blog
Street Smart Post.
Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer
for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market